Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
|
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended December 31, 2011
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from To
Commission File No. 000-53870
VERSAILLES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Maryland
|
|
27-1330256
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(State or other jurisdiction
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(I.R.S. Employer Identification No.)
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of incorporation or organization)
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|
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27 East Main Street, Versailles, Ohio
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45380
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(Address of principal executive offices)
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(Zip Code)
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|
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(937) 526-4515
(Registrants telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.05 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
|
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Accelerated filer
o
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|
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Non-accelerated filer
o
(Do not check if smaller reporting company)
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Smaller reporting company
x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value
|
|
Outstanding at February 13, 2012
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|
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427,504 Common Shares
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Table of Contents
VERSAILLES FINANCIAL CORPORATION
FINANCIAL STATEMENTS
December 31, 2011
CONTENTS
Table of Contents
VERSAILLES FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2011 and June 30, 2011
|
|
December 31,
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June 30,
|
|
|
|
2011
|
|
2011
|
|
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(Unaudited)
|
|
|
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ASSETS
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|
|
|
|
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Cash and cash equivalents due from financial institutions
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|
$
|
2,204,133
|
|
$
|
2,371,401
|
|
Overnight deposits
|
|
3,700,000
|
|
1,700,000
|
|
Total cash and cash equivalents
|
|
5,904,133
|
|
4,071,401
|
|
Interest-bearing time deposits in other financial institutions
|
|
588,000
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|
292,000
|
|
Securities, available-for-sale
|
|
696,290
|
|
699,297
|
|
Securities held to maturity (fair value of $645,433 at December 31, 2011 and $729,604 at June 30, 2011)
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|
612,661
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|
693,918
|
|
Federal Home Loan Bank stock
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|
397,500
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|
397,500
|
|
Loans, net of allowance of $250,817 and $220,817
|
|
36,011,072
|
|
37,514,804
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|
Premises and equipment, net
|
|
1,023,500
|
|
259,116
|
|
Accrued interest receivable
|
|
109,228
|
|
122,997
|
|
Other assets
|
|
518,155
|
|
454,526
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
45,860,539
|
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$
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44,505,559
|
|
|
|
|
|
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LIABILITIES
|
|
|
|
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Savings accounts
|
|
$
|
9,390,578
|
|
$
|
8,970,233
|
|
Certificates of deposit
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|
18,408,354
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|
17,505,499
|
|
Total deposits
|
|
27,798,932
|
|
26,475,732
|
|
Federal Home Loan Bank advances
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|
6,000,000
|
|
6,000,000
|
|
Other liabilities
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|
990,686
|
|
1,039,362
|
|
|
|
|
|
|
|
Common stock in ESOP subject to repurchase obligation
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|
39,433
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|
22,230
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
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Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding
|
|
|
|
|
|
Common stock, $.01 par value, 10,000,000 shares authorized, 427,504 shares issued
|
|
4,275
|
|
4,275
|
|
Additional paid-in capital
|
|
3,779,913
|
|
3,794,894
|
|
Retained earnings
|
|
8,233,464
|
|
8,165,438
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|
Treasury stock, 35,460 shares, at cost
|
|
(354,600
|
)
|
(354,600
|
)
|
Unearned employee stock ownership plan shares
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|
(307,800
|
)
|
(316,350
|
)
|
Accumulated other comprehensive loss
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|
(323,764
|
)
|
(325,422
|
)
|
Total shareholders equity
|
|
11,031,488
|
|
10,968,235
|
|
|
|
|
|
|
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Total liabilities and shareholders equity
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|
$
|
45,860,539
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$
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44,505,559
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|
See accompanying notes to financial statements.
1
Table of Contents
VERSAILLES FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months and six months ended December 31, 2011 and 2010
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|
Three months ended
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Six months ended
|
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December 31,
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December 31,
|
|
|
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2011
|
|
2010
|
|
2011
|
|
2010
|
|
Interest and dividend income
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
468,638
|
|
$
|
489,410
|
|
$
|
950,045
|
|
$
|
991,810
|
|
Securities available for sale
|
|
2,978
|
|
4,333
|
|
6,193
|
|
8,707
|
|
Securities held-to-maturity
|
|
4,843
|
|
6,714
|
|
10,151
|
|
14,020
|
|
FHLB dividends
|
|
4,007
|
|
4,007
|
|
7,972
|
|
8,467
|
|
Deposits with banks
|
|
2,588
|
|
3,203
|
|
5,748
|
|
8,743
|
|
Total interest and dividend income
|
|
483,054
|
|
507,667
|
|
980,109
|
|
1,031,747
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
68,962
|
|
79,128
|
|
141,586
|
|
163,586
|
|
FHLB advances
|
|
44,313
|
|
50,970
|
|
91,963
|
|
125,222
|
|
Total interest expense
|
|
113,275
|
|
130,098
|
|
233,549
|
|
288,808
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
369,779
|
|
377,569
|
|
746,560
|
|
742,939
|
|
Provisions for loan losses
|
|
15,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provisions for loan losses
|
|
354,779
|
|
377,569
|
|
716,560
|
|
742,939
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
|
|
|
|
|
|
|
Other income
|
|
1,255
|
|
786
|
|
2,409
|
|
3,213
|
|
Gain (loss) on sale of other real estate owned
|
|
|
|
|
|
|
|
(2,294
|
)
|
Total noninterest income
|
|
1,255
|
|
786
|
|
2,409
|
|
919
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
157,569
|
|
157,184
|
|
299,013
|
|
292,543
|
|
Occupancy and equipment
|
|
5,491
|
|
7,897
|
|
11,091
|
|
15,972
|
|
Directors fees
|
|
16,150
|
|
15,500
|
|
31,150
|
|
30,100
|
|
Data processing
|
|
18,258
|
|
24,309
|
|
36,439
|
|
41,396
|
|
Franchise taxes
|
|
25,081
|
|
20,673
|
|
50,163
|
|
41,346
|
|
Legal, accounting and exam fees
|
|
65,642
|
|
63,549
|
|
142,786
|
|
140,236
|
|
Federal deposit insurance
|
|
5,100
|
|
4,985
|
|
10,200
|
|
11,360
|
|
Other
|
|
19,146
|
|
20,851
|
|
34,901
|
|
40,600
|
|
Total noninterest expense
|
|
312,437
|
|
314,948
|
|
615,743
|
|
613,553
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
43,597
|
|
63,407
|
|
103,226
|
|
130,305
|
|
Income tax expense
|
|
14,900
|
|
21,200
|
|
35,200
|
|
43,500
|
|
Net income
|
|
$
|
28,697
|
|
$
|
42,207
|
|
$
|
68,026
|
|
$
|
86,805
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share
|
|
$
|
0.07
|
|
$
|
0.11
|
|
$
|
0.17
|
|
$
|
0.22
|
|
See accompanying notes to financial statements.
2
Table of Contents
VERSAILLES FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (UNAUDITED)
Six months ended December 31, 2011 and 2010
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Unearned
|
|
Other
|
|
|
|
|
|
Common
|
|
Paid-In
|
|
Retained
|
|
Treasury
|
|
ESOP
|
|
Comprehensive
|
|
|
|
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Stock
|
|
Shares
|
|
Income (Loss)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 1, 2011
|
|
$
|
4,275
|
|
$
|
3,794,894
|
|
$
|
8,165,438
|
|
$
|
(354,600
|
)
|
$
|
(316,350
|
)
|
$
|
(325,422
|
)
|
$
|
10,968,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the period ended December 31, 2011
|
|
|
|
|
|
68,026
|
|
|
|
|
|
|
|
68,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain (loss) on securities available for sale, net of tax effects of $1,023
|
|
|
|
|
|
|
|
|
|
|
|
(1,984
|
)
|
(1,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost for supplemental retirement plan, net of tax effects of $1,876
|
|
|
|
|
|
|
|
|
|
|
|
3,642
|
|
3,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment to release 855 employee stock ownership plan shares at fair value
|
|
|
|
2,221
|
|
|
|
|
|
8,550
|
|
|
|
10,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of 1,710 allocated ESOP common shares subject to repurchase obligation
|
|
|
|
(17,100
|
)
|
|
|
|
|
|
|
|
|
(17,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of 3,420 allocated ESOP common shares subject to repurchase obligation
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
$
|
4,275
|
|
$
|
3,779,913
|
|
$
|
8,233,464
|
|
$
|
(354,600
|
)
|
$
|
(307,800
|
)
|
$
|
(323,764
|
)
|
$
|
11,031,488
|
|
See accompanying notes to financial statements.
3
Table of Contents
VERSAILLES FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended December 31, 2011 and 2010
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
|
2011
|
|
2010
|
|
Cash flows from operating activities
|
|
|
|
|
|
Net income
|
|
$
|
68,026
|
|
$
|
86,805
|
|
Adjustments to reconcile net income to net cash provided from operating activities
|
|
|
|
|
|
Provision for loan losses
|
|
30,000
|
|
|
|
Depreciation on premises and equipment
|
|
3,586
|
|
4,304
|
|
Net amortization of securities
|
|
130
|
|
130
|
|
Loss (gain) on sale or disposal of premises and equipment
|
|
|
|
963
|
|
Loss on sale of other real estate owned
|
|
|
|
2,294
|
|
Compensation expense related to ESOP shares
|
|
10,771
|
|
8,550
|
|
Change in:
|
|
|
|
|
|
Deferred loan costs
|
|
(1,265
|
)
|
3,562
|
|
Accrued interest receivable
|
|
13,769
|
|
11,415
|
|
Other assets
|
|
(64,482
|
)
|
48,130
|
|
Other liabilities
|
|
(43,157
|
)
|
136,917
|
|
Net cash from operating activities
|
|
17,378
|
|
303,070
|
|
|
|
|
|
|
|
Cash flow from investing activities
|
|
|
|
|
|
Maturities of time deposits
|
|
194,000
|
|
194,000
|
|
Purchases of time deposits
|
|
(490,000
|
)
|
|
|
Maturities, repayments and calls of securities held to maturity
|
|
81,127
|
|
134,147
|
|
Loan originations and payments, net
|
|
1,474,997
|
|
(817,460
|
)
|
Proceeds from sale of other real estate owned
|
|
|
|
117,706
|
|
Property and equipment purchases
|
|
(767,970
|
)
|
(27,736
|
)
|
Net cash from investing activities
|
|
492,154
|
|
(399,343
|
)
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
Net change in deposits
|
|
1,323,200
|
|
(445,929
|
)
|
Proceeds from FHLB advances
|
|
1,000,000
|
|
1,000,000
|
|
Repayments of FHLB advances
|
|
(1,000,000
|
)
|
(2,500,000
|
)
|
Net cash from financing activities
|
|
1,323,200
|
|
(1,945,929
|
)
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
1,832,732
|
|
(2,042,202
|
)
|
Cash and cash equivalents, beginning of period
|
|
4,071,401
|
|
4,872,815
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
5,904,133
|
|
$
|
2,830,613
|
|
|
|
|
|
|
|
Cash paid during the year for
|
|
|
|
|
|
Interest
|
|
$
|
239,536
|
|
$
|
306,189
|
|
Income taxes
|
|
161,109
|
|
|
|
See accompanying notes to financial statements.
4
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
: The accompanying unaudited consolidated financial statements include the accounts of Versailles Financial Corporation (Versailles) and its wholly owned subsidiary, Versailles Savings and Loan Company (Association). Versailles and its subsidiary are collectively referred to as the (Company). All material intercompany transactions have been eliminated. The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulations S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Companys financial position as of December 31, 2011 and the results of operations and cash flows for the three months and six months ended December 31, 2011 and 2010. All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the year. These financial statements should be read in conjunction with the Companys audited financial statements and notes thereto filed as part of Versailles Financial Corporations Annual Report on Form 10-K for the year ended June 30, 2011, as filed with the Securities and Exchange Commission on September 28, 2011.
Loans
: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, plus net deferred loan costs less the allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method over the contractual terms of the loan.
For all classes of loans - interest income on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
For all classes of loans - all interest accrued but not received for loans placed on nonaccrual are reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
(Continued)
5
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Allowance for Loan Losses
: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in managements judgment, should be charged-off.
The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.
A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified in a manner representing a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.
Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Commercial and commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loans existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loans effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.
6
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent eighteen months. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: 1-4 family real estate, multi-family real estate, construction real estate, nonresidential real estate, commercial and consumer.
1-4 Family real estate:
1-4 family mortgage loans represent loans to consumers for the purchase, refinance or improvement of a residence. Real estate market values at the time of origination directly affect the amount of credit extended and, in the event of default, subsequent changes in these values may impact the severity of losses. Factors considered by management include unemployment levels, credit history and real estate values in the Associations market area.
Multi-family real estate:
Multi-family loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and property types. Management specifically considers real estate values, credit history and unemployment levels.
Construction real estate:
Construction loans are subject to underwriting standards and processes similar to 1-4 family mortgage loans. Real estate market values at the time of origination directly affect the amount of credit extended. These values are determined from plans and estimates provided by the contractor. Inspections are monitored by management. Real estate market values at the time of origination directly affect the amount of credit extended and, in the event of default, subsequent changes in these values may impact the severity of losses. Factors considered by management include unemployment levels, credit history, knowledge of general contractor and real estate values in the Associations market area.
Non-residential real estate:
Non-residential loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the farm or business. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and property types. Management specifically considers real estate values, credit history, unemployment levels, crop prices and yields.
7
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Commercial:
Commercial credit is extended to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or other projects. The majority of these borrowers are customers doing business in the Associations primary market area. These loans are generally underwritten individually and secured with the assets of the company and the personal guarantee of the business owners. Commercial business loans are made based primarily on the borrowers ability to make repayment from the historical and projected cash flow of the borrowers business and the underlying collateral provided by the borrower. Management specifically considers unemployment, credit history and the nature of the business.
Consumer Loans:
Consumer loans are primarily comprised of secured loans including automobile loans, loans on deposit accounts, home improvement loans and to a lesser extent, unsecured personal loans. These loans are underwritten based on several factors including debt-to-income, type of collateral and loan to value, credit history and relationship with the borrower. Unemployment rates are specifically considered by management
Earnings Per Common Share
: Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. Versailles had no potential common shares issuable under stock options or other agreements for the periods presented. The weighted average number of shares outstanding for basic earnings per common share was 396,510 and 396,296 for the three months and six months ended December 31, 2011, respectively. The weighted average number of shares outstanding for basic earnings per common share was 394,800 and 394,586 for the three and six months ended December 31, 2010.
Versailles established a Rabbi Trust and participants in the Associations deferred compensation and supplemental retirement plans could elect to use all or some of the amounts in their accounts to purchase shares in the Companys mutual to stock conversion. These shares are held in the trust and the obligation under the deferred compensation and supplemental retirement plans will be settled with these shares. As such, the shares are carried as treasury stock in the consolidated balance sheet and the shares are considered outstanding for the purpose of calculating earnings per share.
Employee Stock Ownership Plan
: The cost of shares issued to the Employee Stock Ownership Plan (ESOP), but not yet allocated to participants, is shown as a reduction of shareholders equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings. Dividends on unearned ESOP shares reduce debt and accrued interest. Participants may exercise a put option and require the Company to repurchase their ESOP shares upon termination. As a result, an amount of equity equal to the fair value of the allocated shares is reclassified out of shareholders equity. As of December 31, 2011 there were 3,420 allocated shares related to the ESOP plan. Compensation expense related to the plan was $5,204 and $10,771 for the three months and six months ended December 31, 2011, respectively. As of
December 31, 2010 there were 1,710 allocated shares related to the ESOP plan. Compensation expense related to the plan was $4,280 and $8,550 for the three months and six months ended December 31, 2010, respectively.
8
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Stock Options
: The Companys 2011 Equity Incentive Plan (the Plan), which was shareholder approved on November 15, 2011, permits the grant of share options to its employees for up to 42,750 shares of common stock. Provisions of the plan indicate option awards are generally granted with an exercise price equal to the market price of the Companys common stock at the date of grant with vesting periods defined by the Board of Directors. The fair value of options awarded is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. At December 31, 2011 there were no grants of stock options related to the Plan and no compensation expense has been recognized related to the Plan.
Share Awards
: The Plan provides for the issuance of restricted shares to directors and officers. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date. Total shares issuable under the plan are 17,100 at December 31, 2011. No shares have been issued nor any expense recorded as of December 31, 2011.
Reclassifications
: Some items in prior financial statements have been reclassified to conform to the current presentation.
Adoption of New Accounting Pronouncements
: In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditors evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. With regard to determining whether a concession has been granted, the ASU clarifies that creditors are precluded from using the effective interest rate method to determine whether a concession has been granted. In the absence of using the effective interest method, a creditor must now focus on other considerations such as the value of the underlying collateral, evaluation of other collateral or guarantees, the debtors ability to access other funds at market rates, interest rate increases and whether the restructuring results in a delay in payment that is insignificant. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. For purposes of measuring impairment on newly identified troubled debt restructurings, the amendments should be applied prospectively for the first interim or annual period beginning on or after June 15, 2011. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements.
9
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Effect of Newly Issued But Not Yet Effective Accounting Standards
: In May 2011, the FASB issued ASU No. 2011-04 to Fair Value Measurement (ASC 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements is U.S. GAAP and IFRSs. This ASU changes the wording used to describe many of the requirements in U.S. generally accepted accounting principles (GAAP) for measuring fair value and for disclosing information about fair value measurements. The amendments in this update include clarifying the Boards intent about the application of existing fair value measurement and disclosure requirements, and changing particular principles or requirements for measuring fair value for disclosing information about fair value measurement. The amendments in this update are effective for interim and annual periods beginning after December 15, 2011 and are to be applied prospectively. Early adoption is not permitted. The adoption of the disclosure provision of the ASU is not expected to have a material impact on the Companys consolidated financial statements.
In June 2011, FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholders equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. Early adoption is permitted. The adoption of this amendment will change the presentation of the components of comprehensive income for the Company as part of the consolidated statement of shareholders equity.
10
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 2 - SECURITIES
The amortized cost and fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows.
|
|
December 31, 2011
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
AMF Short US Government Fund
|
|
$
|
694,034
|
|
$
|
2,256
|
|
$
|
|
|
$
|
696,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
AMF Short US Government Fund
|
|
$
|
694,034
|
|
$
|
5,263
|
|
$
|
|
|
$
|
699,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of available-for-sale securities during the three months or six months ended December 31, 2011 or 2010.
The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows.
|
|
December 31, 2011
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Carrying
|
|
Unrecognized
|
|
Unrecognized
|
|
Fair
|
|
|
|
Amount
|
|
Gains
|
|
Losses
|
|
Value
|
|
Government sponsored entities residential mortgage-backed:
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
$
|
302,118
|
|
$
|
14,448
|
|
$
|
|
|
$
|
316,566
|
|
GNMA
|
|
85,550
|
|
2,678
|
|
|
|
88,228
|
|
FNMA
|
|
224,993
|
|
15,646
|
|
|
|
240,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
612,661
|
|
$
|
32,772
|
|
$
|
|
|
$
|
645,433
|
|
11
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 2 SECURITIES
(Continued)
|
|
June 30, 2011
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Carrying
|
|
Unrecognized
|
|
Unrecognized
|
|
Fair
|
|
|
|
Amount
|
|
Gains
|
|
Losses
|
|
Value
|
|
Government sponsored entities residential mortgage-backed:
|
|
|
|
|
|
|
|
|
|
FHLMC
|
|
$
|
333,111
|
|
$
|
13,779
|
|
$
|
|
|
$
|
346,890
|
|
GNMA
|
|
91,135
|
|
3,162
|
|
|
|
94,297
|
|
FNMA
|
|
269,672
|
|
18,745
|
|
|
|
288,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
693,918
|
|
$
|
35,686
|
|
$
|
|
|
$
|
729,604
|
|
At December 31, 2011, the Company had no securities due at a single maturity date. Additionally, the Company had no securities at December 31, 2011 or June 30, 2011 in an unrealized loss position.
NOTE 3 - LOANS
Loans at December 31, 2011 and June 30, 2011 were as follows:
|
|
December 31,
|
|
June 30,
|
|
|
|
2011
|
|
2011
|
|
Mortgage loans:
|
|
|
|
|
|
1-4 family real estate
|
|
$
|
26,535,377
|
|
$
|
27,844,602
|
|
Multi-family real estate
|
|
202,567
|
|
235,613
|
|
Construction real estate
|
|
|
|
402,686
|
|
Nonresidential real estate:
|
|
|
|
|
|
Business
|
|
2,563,553
|
|
2,571,517
|
|
Agricultural
|
|
5,132,727
|
|
5,104,184
|
|
|
|
|
|
|
|
Commercial loans
|
|
537,452
|
|
486,701
|
|
Consumer loans:
|
|
|
|
|
|
Loans on deposits
|
|
89,255
|
|
56,188
|
|
Consumer auto
|
|
451,219
|
|
390,499
|
|
Consumer other secured
|
|
234,961
|
|
238,161
|
|
Consumer unsecured
|
|
469,615
|
|
361,572
|
|
Total loans
|
|
36,216,726
|
|
37,691,723
|
|
|
|
|
|
|
|
Deferred loan costs
|
|
45,163
|
|
43,898
|
|
Allowance for loan losses
|
|
(250,817
|
)
|
(220,817
|
)
|
|
|
|
|
|
|
|
|
$
|
36,011,072
|
|
$
|
37,514,804
|
|
12
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 3 LOANS
(Continued)
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended December 31, 2011:
|
|
1-4 Family
|
|
Multi-Family
|
|
Construction
|
|
Nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
Real
|
|
Real
|
|
Real
|
|
Commercial
|
|
Consumer
|
|
Unallocated
|
|
|
|
|
|
Estate
|
|
Estate
|
|
Estate
|
|
Estate
|
|
Loans
|
|
Loans
|
|
Balance
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
210,147
|
|
$
|
703
|
|
$
|
478
|
|
$
|
17,871
|
|
$
|
1,454
|
|
$
|
4,473
|
|
$
|
691
|
|
$
|
235,817
|
|
Provision for loan losses
|
|
10,173
|
|
(50
|
)
|
(478
|
)
|
414
|
|
286
|
|
585
|
|
4,070
|
|
15,000
|
|
Loans charged-off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
220,320
|
|
$
|
653
|
|
$
|
|
|
$
|
18,285
|
|
$
|
1,740
|
|
$
|
5,058
|
|
$
|
4,761
|
|
$
|
250,817
|
|
The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended December 31, 2011:
|
|
1-4 Family
|
|
Multi-Family
|
|
Construction
|
|
Nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
Real
|
|
Real
|
|
Real
|
|
Commercial
|
|
Consumer
|
|
Unallocated
|
|
|
|
|
|
Estate
|
|
Estate
|
|
Estate
|
|
Estate
|
|
Loans
|
|
Loans
|
|
Balance
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
186,092
|
|
$
|
377
|
|
$
|
644
|
|
$
|
24,562
|
|
$
|
1,557
|
|
$
|
3,349
|
|
$
|
4,236
|
|
$
|
220,817
|
|
Provision for loan losses
|
|
34,228
|
|
276
|
|
(644
|
)
|
(6,277
|
)
|
183
|
|
1,709
|
|
525
|
|
30,000
|
|
Loans charged-off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
220,320
|
|
$
|
653
|
|
$
|
|
|
$
|
18,285
|
|
$
|
1,740
|
|
$
|
5,058
|
|
$
|
4,761
|
|
$
|
250,817
|
|
13
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 3 LOANS
(Continued)
Activity in the allowance for loan losses was as follows for the three months and six months ended December 31, 2011 and 2010.
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
235,817
|
|
$
|
190,817
|
|
$
|
220,817
|
|
$
|
190,817
|
|
Provision for loan losses
|
|
15,000
|
|
|
|
30,000
|
|
|
|
Loans charged-off
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
250,817
|
|
$
|
190,817
|
|
$
|
250,817
|
|
$
|
190,817
|
|
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2011:
|
|
1-4 Family
|
|
Multi-Family
|
|
Construction
|
|
Nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
Real
|
|
Real
|
|
Real
|
|
Consumer
|
|
Commercial
|
|
Unallocated
|
|
|
|
|
|
Estate
|
|
Estate
|
|
Estate
|
|
Estate
|
|
Loans
|
|
Loans
|
|
Balance
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Collectively evaluated for impairment
|
|
220,320
|
|
653
|
|
|
|
18,285
|
|
5,058
|
|
1,740
|
|
4,761
|
|
250,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
220,320
|
|
$
|
653
|
|
$
|
|
|
$
|
18,285
|
|
$
|
5,058
|
|
$
|
1,740
|
|
$
|
4,761
|
|
$
|
250,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
61,146
|
|
$
|
|
|
$
|
|
|
$
|
487,965
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
549,111
|
|
Collectively evaluated for impairment
|
|
26,544,521
|
|
204,107
|
|
|
|
7,260,233
|
|
1,264,614
|
|
543,621
|
|
|
|
35,817,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
26,605,667
|
|
$
|
204,107
|
|
$
|
|
|
$
|
7,748,198
|
|
$
|
1,264,614
|
|
$
|
543,621
|
|
$
|
|
|
$
|
36,366,207
|
|
Included in recorded investment is $45,163 of deferred loan costs and $104,318 of accrued loan interest.
14
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 3 LOANS
(Continued)
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2011:
|
|
1-4 Family
|
|
Multi-Family
|
|
Construction
|
|
Nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
Real
|
|
Real
|
|
Real
|
|
Consumer
|
|
Commercial
|
|
Unallocated
|
|
|
|
|
|
Estate
|
|
Estate
|
|
Estate
|
|
Estate
|
|
Loans
|
|
Loans
|
|
Balance
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Collectively evaluated for impairment
|
|
186,092
|
|
377
|
|
644
|
|
24,562
|
|
1,557
|
|
3,349
|
|
4,236
|
|
220,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
186,092
|
|
$
|
377
|
|
$
|
644
|
|
$
|
24,562
|
|
$
|
1,557
|
|
$
|
3,349
|
|
$
|
4,236
|
|
$
|
220,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
69,712
|
|
$
|
|
|
$
|
|
|
$
|
488,589
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
558,301
|
|
Collectively evaluated for impairment
|
|
27,862,001
|
|
237,409
|
|
403,562
|
|
7,237,251
|
|
1,064,170
|
|
490,058
|
|
|
|
37,294,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
27,931,713
|
|
$
|
237,409
|
|
$
|
403,562
|
|
$
|
7,725,840
|
|
$
|
1,064,170
|
|
$
|
490,058
|
|
$
|
|
|
$
|
37,852,752
|
|
Included in recorded investment is $43,898 of deferred loan costs and $117,131 of accrued loan interest.
15
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 3 LOANS
(Continued)
The following table presents information related to loans individually evaluated for impairment by class of loans as of December 31, 2011:
|
|
|
|
|
|
|
|
For the three months ended
|
|
For the six months ended
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
December 31, 2011
|
|
|
|
Unpaid
|
|
|
|
Allowance for
|
|
Average
|
|
Interest
|
|
Cash Basis
|
|
Average
|
|
Interest
|
|
Cash Basis
|
|
|
|
Principal
|
|
Recorded
|
|
Loan Losses
|
|
Recorded
|
|
Income
|
|
Interest
|
|
Recorded
|
|
Income
|
|
Interest
|
|
|
|
Balance
|
|
Investment
|
|
Allocated
|
|
Investment
|
|
Recognized
|
|
Recognized
|
|
Investment
|
|
Recognized
|
|
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family real estate
|
|
$
|
61,131
|
|
$
|
61,146
|
|
$
|
|
|
$
|
64,018
|
|
$
|
818
|
|
$
|
818
|
|
$
|
65,446
|
|
$
|
1,689
|
|
$
|
1,689
|
|
Multi-family real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonresidential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
485,111
|
|
487,965
|
|
|
|
488,628
|
|
7,953
|
|
7,965
|
|
489,064
|
|
15,939
|
|
13,293
|
|
Agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer auto
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer other secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonresidential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer auto
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer other secured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
546,242
|
|
$
|
549,111
|
|
$
|
|
|
$
|
552,646
|
|
$
|
8,771
|
|
$
|
8,783
|
|
$
|
554,510
|
|
$
|
17,628
|
|
$
|
14,982
|
|
16
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 3 LOANS
(Continued)
The following table presents information related to loans individually evaluated for impairment by class of loans as of June 30, 2011.
|
|
Unpaid
|
|
|
|
Allowance for
|
|
|
|
Principal
|
|
Recorded
|
|
Loan Losses
|
|
|
|
Balance
|
|
Investment
|
|
Allocated
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
1-4 family real estate
|
|
$
|
69,691
|
|
$
|
69,712
|
|
$
|
|
|
Multi-family real estate
|
|
|
|
|
|
|
|
Construction real estate
|
|
|
|
|
|
|
|
Nonresidential real estate:
|
|
|
|
|
|
|
|
Business
|
|
488,382
|
|
488,589
|
|
|
|
Agricultural
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
|
|
|
|
|
Consumer auto
|
|
|
|
|
|
|
|
Consumer other secured
|
|
|
|
|
|
|
|
Consumer unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
1-4 family real estate
|
|
|
|
|
|
|
|
Multi-family real estate
|
|
|
|
|
|
|
|
Construction real estate
|
|
|
|
|
|
|
|
Nonresidential real estate:
|
|
|
|
|
|
|
|
Business
|
|
|
|
|
|
|
|
Agricultural
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
|
|
|
|
|
Consumer auto
|
|
|
|
|
|
|
|
Consumer other secured
|
|
|
|
|
|
|
|
Consumer unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
558,073
|
|
$
|
558,301
|
|
$
|
|
|
The following table presents information related to loans individually evaluated for impairment by class of loans.
|
|
Six Months Ended
|
|
|
|
December 31, 2010
|
|
|
|
|
|
Average of impaired loans during the period
|
|
$
|
90,181
|
|
Interest income recognized during impairment
|
|
|
|
Cash-basis interest income recognized
|
|
|
|
|
|
|
|
|
17
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 3 LOANS
(Continued)
The following tables present the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of December 31, 2011 and June 30, 2011.
|
|
|
|
|
|
Loans Past Due Over
|
|
|
|
Nonaccrual
|
|
90 Days Still Accruing
|
|
|
|
December 31,
|
|
June 30,
|
|
December 31,
|
|
June 30,
|
|
|
|
2011
|
|
2011
|
|
2011
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family real estate
|
|
$
|
176,363
|
|
$
|
69,712
|
|
$
|
|
|
$
|
|
|
Multi-family real estate
|
|
|
|
|
|
|
|
|
|
Construction real estate
|
|
|
|
|
|
|
|
|
|
Nonresidential real estate:
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
|
|
|
|
|
|
|
Consumer auto
|
|
|
|
|
|
|
|
|
|
Consumer other secured
|
|
|
|
|
|
|
|
|
|
Consumer unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
176,363
|
|
$
|
69,712
|
|
$
|
|
|
$
|
|
|
The following table presents the aging of the recorded investment of past due loans as of December 31, 2011 by class of loans:
|
|
30 - 59
|
|
60 - 89
|
|
Greater than
|
|
|
|
|
|
|
|
|
|
Days
|
|
Days
|
|
89 Days
|
|
Total
|
|
Loans Not
|
|
|
|
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family real estate
|
|
$
|
75,422
|
|
$
|
|
|
$
|
115,217
|
|
$
|
190,639
|
|
$
|
26,415,028
|
|
$
|
26,605,667
|
|
Multi-family real estate
|
|
|
|
|
|
|
|
|
|
204,107
|
|
204,107
|
|
Construction real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonresidential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
|
|
|
|
|
|
|
2,571,991
|
|
2,571,991
|
|
Agricultural
|
|
|
|
|
|
|
|
|
|
5,176,207
|
|
5,176,207
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
543,621
|
|
543,621
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
|
|
|
|
|
|
|
91,741
|
|
91,741
|
|
Consumer auto
|
|
1,248
|
|
|
|
|
|
1,248
|
|
455,442
|
|
456,690
|
|
Consumer other secured
|
|
|
|
|
|
|
|
|
|
237,702
|
|
237,702
|
|
Consumer unsecured
|
|
|
|
|
|
|
|
|
|
478,481
|
|
478,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,670
|
|
$
|
|
|
$
|
115,217
|
|
$
|
191,887
|
|
$
|
36,174,320
|
|
$
|
36,366,207
|
|
18
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 3 LOANS
(Continued)
The following table presents the aging of the recorded investment of past due loans as of June 30, 2011 by class of loans:
|
|
30 - 59
|
|
60 - 89
|
|
Greater than
|
|
|
|
|
|
|
|
|
|
Days
|
|
Days
|
|
89 Days
|
|
Total
|
|
Loans Not
|
|
|
|
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family real estate
|
|
$
|
49,879
|
|
$
|
94,188
|
|
$
|
|
|
$
|
144,067
|
|
$
|
27,787,646
|
|
$
|
27,931,713
|
|
Multi-family real estate
|
|
|
|
|
|
|
|
|
|
237,409
|
|
237,409
|
|
Construction real estate
|
|
|
|
|
|
|
|
|
|
403,562
|
|
403,562
|
|
Nonresidential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
|
|
|
|
|
|
|
2,578,060
|
|
2,578,060
|
|
Agricultural
|
|
|
|
|
|
|
|
|
|
5,147,780
|
|
5,147,780
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
490,058
|
|
490,058
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on deposits
|
|
|
|
|
|
|
|
|
|
58,852
|
|
58,852
|
|
Consumer auto
|
|
3,495
|
|
|
|
|
|
3,495
|
|
393,139
|
|
396,634
|
|
Consumer other secured
|
|
|
|
|
|
|
|
|
|
240,205
|
|
240,205
|
|
Consumer unsecured
|
|
1,096
|
|
|
|
|
|
1,096
|
|
367,383
|
|
368,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
54,470
|
|
$
|
94,188
|
|
$
|
|
|
$
|
148,658
|
|
$
|
37,704,094
|
|
$
|
37,852,752
|
|
Troubled Debt Restructurings
: At December 31, 2011 and June 30, 2011, the Company had one nonresidential real estate business loan with a recorded investment of $487,965 and $488,589, respectively, classified as a troubled debt restructure (TDRs), which is classified as an impaired loan. At December 31, 2011 and June 30, 2011 the Company had $0 of the allowance for loan losses allocated to this specific loan. The Company has not committed to lend additional amounts as of December 31, 2011 and June 30, 2011 to this customer.
During the three and six month period ended December 31, 2011, the Company did not modify any loans as TDRs, record any charge-offs related to TDRs nor experience a payment default on a TDR within the three months following the modification.
The modification of the terms of such loans would include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.
There were no modifications involving a reduction of the stated interest rate of the loan and no modifications involving an extension of the maturity date.
A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
19
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 3 LOANS
(Continued)
The terms of certain other loans were modified during the three months ended December 31, 2011 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of December 31, 2011 of $298,115. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Companys internal underwriting policy.
Credit Quality Indicators
: The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
Special Mention.
Loans classified as special mention have a potential weakness that deserves managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institutions credit position at some future date.
Substandard.
Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful.
Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. One loan with a recorded investment totaling $487,965 is a troubled debt restructuring and was classified as pass due to a loan to value ratio of 47.1% and the loan being current. As of December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans at recorded investment is as follows:
20
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 3 LOANS
(Continued)
|
|
|
|
Special
|
|
|
|
|
|
Not
|
|
|
|
Pass
|
|
Mention
|
|
Substandard
|
|
Doubtful
|
|
Rated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family real estate
|
|
$
|
|
|
$
|
176,363
|
|
$
|
|
|
$
|
|
|
$
|
26,429,304
|
|
Multi-Family real estate
|
|
204,107
|
|
|
|
|
|
|
|
|
|
Construction real estate
|
|
|
|
|
|
|
|
|
|
|
|
Nonresidential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
2,571,991
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
5,176,207
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
543,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,495,926
|
|
$
|
176,363
|
|
$
|
|
|
$
|
|
|
$
|
26,429,304
|
|
As of June 30, 2011, the risk category of loans by class of loans at recorded investment was as follows:
|
|
|
|
Special
|
|
|
|
|
|
Not
|
|
|
|
Pass
|
|
Mention
|
|
Substandard
|
|
Doubtful
|
|
Rated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family real estate
|
|
$
|
|
|
$
|
69,712
|
|
$
|
|
|
$
|
|
|
$
|
27,862,001
|
|
Multi-Family real estate
|
|
237,409
|
|
|
|
|
|
|
|
|
|
Construction real estate
|
|
403,562
|
|
|
|
|
|
|
|
|
|
Nonresidential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
2,578,060
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
5,147,780
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
490,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,856,869
|
|
$
|
69,712
|
|
$
|
|
|
$
|
|
|
$
|
27,862,001
|
|
The Company does not make subprime loans.
The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment of residential and consumer loans based on payment activity as of December 31, 2011:
|
|
Consumer
|
|
Residential
|
|
|
|
Loans on
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
Auto
|
|
Secured
|
|
Unsecured
|
|
Multi-family
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
91,741
|
|
$
|
456,690
|
|
$
|
237,702
|
|
$
|
478,481
|
|
$
|
204,107
|
|
|
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
91,741
|
|
$
|
456,690
|
|
$
|
237,702
|
|
$
|
478,481
|
|
$
|
204,107
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 3 LOANS
(Continued)
Included in recorded investment is $8,714 of deferred loan fees and $12,390 of accrued loan interest.
The following table presents the recorded investment of residential and consumer loans based on payment activity as of June 30, 2011:
|
|
Consumer
|
|
Residential
|
|
|
|
Loans on
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
Auto
|
|
Secured
|
|
Unsecured
|
|
Multi-family
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
58,852
|
|
$
|
396,634
|
|
$
|
240,205
|
|
$
|
368,479
|
|
$
|
237,409
|
|
403,562
|
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58,852
|
|
$
|
396,634
|
|
$
|
240,205
|
|
$
|
368,479
|
|
$
|
237,409
|
|
$
|
403,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in recorded investment is $7,777 of deferred loan fees and $12,645 of accrued loan interest.
NOTE 4 FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used to in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2 inputs).
22
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 4 FAIR VALUE
(Continued)
The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Assets and Liabilities Measured on a Recurring Basis
:
Assets and liabilities measured at fair value on a recurring basis are summarized below.
|
|
Fair Value Measurements
|
|
|
|
at December 31, 2011 Using
|
|
|
|
Quoted Prices in
|
|
Significant
|
|
Significant
|
|
|
|
Active Markets for
|
|
Other Observable
|
|
Unobservable
|
|
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
AMF Short US Government Fund
|
|
$
|
696,290
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
at June 30, 2011 Using
|
|
|
|
Quoted Prices in
|
|
Significant
|
|
Significant
|
|
|
|
Active Markets for
|
|
Other Observable
|
|
Unobservable
|
|
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
AMF Short US Government Fund
|
|
$
|
699,297
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no assets or liabilities measured at fair value on a non-recurring basis at December 31, 2011 or June 30, 2011.
23
Table of Contents
VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2011
NOTE 4 FAIR VALUE
(Continued)
The carrying amount and estimated fair values of financial instruments were as follows at period-end.
|
|
December 31, 2011
|
|
June 30, 2011
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,904,133
|
|
$
|
5,904,133
|
|
$
|
4,071,401
|
|
$
|
4,071,401
|
|
Interest bearing time deposits in other financial institutions
|
|
588,000
|
|
588,000
|
|
292,000
|
|
292,000
|
|
Securities available for sale
|
|
696,290
|
|
696,290
|
|
699,297
|
|
699,297
|
|
Securities held to maturity
|
|
612,661
|
|
645,433
|
|
693,918
|
|
729,604
|
|
Net loans
|
|
36,011,072
|
|
38,191,000
|
|
37,514,804
|
|
39,809,000
|
|
FHLB stock
|
|
397,500
|
|
N/A
|
|
397,500
|
|
N/A
|
|
Accrued interest receivable
|
|
109,228
|
|
109,228
|
|
122,997
|
|
122,997
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
(27,798,932
|
)
|
(28,083,000
|
)
|
(26,475,732
|
)
|
(26,725,000
|
)
|
FHLB advances
|
|
(6,000,000
|
)
|
(6,264,000
|
)
|
(6,000,000
|
)
|
(6,210,000
|
)
|
Accrued interest payable
|
|
(46,788
|
)
|
(46,788
|
)
|
(52,775
|
)
|
(52,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing time deposits in other financial institutions, accrued interest receivable and payable, savings accounts and variable rate loans or deposits that reprice frequent and fully. Securities held to maturity are based on matrix pricing which is a mathematical technique to value debt securities through the securities relationship to other benchmark quoted securities. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits and interest bearing deposits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of Federal Home Loan Bank advances is based upon current rates for similar financing. It was not practical to determine fair value of FHLB stock due to restrictions placed on its transferability. The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements.
24
Table of Contents
VERSAILLES FINANCIAL CORPORATION
Managements Discussion and Analysis of Financial Condition
and Results of Operations
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We have historically operated as a traditional thrift institution. A significant majority of our assets consist of long-term, one- to four-family fixed-rate residential mortgage loans and mortgage-backed securities, which we have funded primarily with deposit accounts and Federal Home Loan Bank of Cincinnati advances. Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities (including U.S. Government agencies, AMF Short U.S. Government Fund and Government sponsored entities residential mortgage-backed securities) and other interest-earning assets, primarily interest-earning deposits at other financial institutions, and the interest paid on our interest-bearing liabilities, consisting primarily of savings accounts, certificates of deposit, and Federal Home Loan Bank of Cincinnati advances. Our results of operations also are affected by our provision for loan losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of service charges on deposit accounts and other income, gains or losses on the sale of available for sale securities and other-than-temporary impairment losses on securities. Noninterest expense currently consists primarily of salaries and employee benefits, occupancy and equipment expenses, data processing, franchise taxes, legal, accounting and exam fees, federal deposit insurance premiums and other operating expenses. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.
Forward-Looking Statements
This report contains forward-looking statements, which can be identified by the use of words such as estimate, project, believe, intend, anticipate, plan, seek, expect, will, may and words of similar meaning. These forward-looking statements include, but are not limited to:
·
Statements of our goals, intentions and expectations;
·
Statements regarding our business plans, prospects, growth and operating strategies;
·
Statements regarding the asset quality of our loan and investment portfolios; and
·
Estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this report.
25
Table of Contents
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
·
General economic conditions, either nationally or in our market area, that are worse than expected;
·
Our ability to successfully implement our plan to increase our nonresidential lending without significant decrease in asset quality;
·
Our success in building our new home office on a cost effective basis;
·
Our ability to offer new deposit products on a cost effective basis and develop and gather core deposits;
·
Our ability to manage our costs as a public company;
·
Our reliance on a small executive staff;
·
Competition among depository and other financial institutions;
·
Inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;
·
Adverse changes in the securities markets;
·
Changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements, additional consumer protection requirements and changes in the identity of our government regulators;
·
Changes in the level of government support of housing finance;
·
Our ability to enter new markets successfully and capitalize on growth opportunities;
·
Our ability to successfully integrate acquired entities, if any;
·
Changes in consumer spending, borrowing and savings habits;
·
Decrease in asset quality;
·
Future deposit insurance premium levels and special assessments;
·
Future compliance costs;
·
Changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;
·
Changes in our organization, compensation and benefit plans;
·
Changes in our financial condition or results of operations that reduce capital available to pay dividends; and
·
Changes in the financial condition or future prospects of issuers of securities that we own.
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
26
Table of Contents
Comparison of Financial Condition at December 31, 2011 and June 30, 2011.
General
. Our total assets increased $1.4 million, or 3.0%, to $45.9 million at December 31, 2011 from $44.5 million at June 30, 2011. Cash and cash equivalents increased $1.8 million, or 45.0%, to $5.9 million at December 31, 2011 from $4.1 million at June 30, 2011. Net loans decreased $1.5 million, or 4.0%, to $36.0 million at December 31, 2011 from $37.5 million at June 30, 2011. Fixed assets increased $0.7 million, or 295.0%, to $1.0 million at December 31, 2011 from $0.3 million at June 30, 2011.
Loans
. Net loans decreased $1.5 million to $36.0 million at December 31, 2011 from $37.5 million at June 30, 2011. 1-4 family, multifamily and construction real estate loans decreased $1.8 million, or 6.1%, to $26.7 million at December 31, 2011 from $28.5 million at June 30, 2011. This decrease represents a combination of reduced demand for these type loans and customers seeking other refinancing options. Nonresidential real estate loans were virtually unchanged at $7.7 million at December 31, 2011 and June 30, 2011. Consumer loans increased $0.2 million, or 19.0%, to $1.2 million at December 31, 2011 from $1.0 million at June 30, 2011.
Investments
. Investment securities decreased $0.1 million, or 6.0%, to $1.3 million at December 31, 2011 from $1.4 million at June 30, 2011. Net pay-downs in government sponsored mortgage-backed securities totaled $81,000 for the six months ended December 31, 2011.
Cash and cash equivalents
. Cash and cash equivalents increased $1.8 million, or 45.0%, to $5.9 million at December 31, 2011 from $4.1 million at June 30, 2011. The increase in cash and cash equivalents was primarily due to the reduction in net loans and increased deposits and partially offset by investment in the new office facility.
Premises and equipment.
The balance in premises and equipment increased $0.7 million, or 295.0%, to $1.0 million at December 31, 2011 from $0.3 million at June 30, 2011 as the construction of the new home office progressed. The Companys current headquarters lacks sufficient space for operations. The exterior of the building is nearly complete as interior finish has commenced. Estimated completion of the office is May, 2012 with an estimated total cost of $1.6 million.
Deposits
. Deposits increased $1.3 million, or 5.0%, to $27.8 million at December 31, 2011 from $26.5 at June 30, 2011. Some investors shifted funds to deposit products from equity-based investments, given the continued volatility in the stock markets during the period. The funds from the increase in deposits are generally held in cash and cash equivalents until they are able to be deployed into credit worthy loans or investment securities.
Borrowings
. Federal Home Loan Bank of Cincinnati advances remained unchanged at $6.0 million at December 31, 2011 and June 30, 2011. A new $1.0 million advance with a rate of 1.02% for three years was acquired in July to replace an existing advance for $1.0 million with a rate of 4.39% that matured in November. We continue to utilize borrowings as an alternative funding source. Our borrowings from the Federal Home Loan Bank of Cincinnati consist of advances with laddered terms of up to six years.
27
Table of Contents
Equity
. Total equity remained unchanged at $11.0 million at December 31, 2011 and June 30, 2011. Net income for the period was $68,000 for the six months ended December 31, 2011 and was partially offset by the allocation of ESOP shares which results in shares being subject to a repurchase obligation. As such, the fair value of the shares subject to the repurchase obligation has been recorded outside of permanent equity.
Comparison of Results of Operations for the Three Months Ended December 31, 2011 and the Three Months Ended December 31, 2010
General
. Net income decreased $13,500, or 32.0%, to $28,700 for the three months ended December 31, 2011 from $42,200 for the three months ended December 31, 2010. The decrease in net income reflected lower net interest income and an increase in expense for the provision for loan losses.
Net Interest Income
.
Net interest income represents the difference between the income we earn on interest-earning assets and the interest expense we pay on interest-bearing liabilities. Net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. Net interest income decreased $7,800, or 2.1%, to $369,800 for the three months ended December 31, 2011 from $377,600 for the three months ended December 31, 2010. This reflected a decrease in our interest rate spread to 3.11% from 3.21% augmented by a decrease in the ratio of our average interest earning assets to average interest bearing liabilities to 128.14% from 131.54%. Our net interest margin decreased to 3.41% from 3.60% primarily because our interest bearing liabilities repriced faster than our interest earning assets in the current low interest rate environment.
Interest Income
. Interest and dividend income decreased $24,600, or 4.8%, to $483,100 for the three months ended December 31, 2011 from $507,700 for the three months ended December 31, 2010. Average interest-earning assets increased to $43.4 million for the three months ended December 31, 2011 from $42.0 million for the three months ended December 31, 2010. The decrease in interest and dividend income is attributable to a decrease in the average yield on interest earning assets to 4.45% for the three months ended December 31, 2011 from 4.84% for the three months ended December 31, 2010.
Interest income on loans decreased $20,000, or 4.2%, to $469,000 for the three months ended December 31, 2011 from $489,000 for the three months ended December 31, 2010, reflecting a decrease in the average balance of loans to $36.4 million for the three months ended December 31, 2011 from $37.1 million for the three months ended December 31, 2010, as well as a decrease in average yields on such balances to 5.15% for the three months ended December 31, 2011 from 5.28% for the three months ended December 31, 2010. The lower yields reflect the continued low interest rate environment.
28
Table of Contents
Interest and dividend income on investment securities decreased $3,000, or 29.2%, to $8,000 for the three months ended December 31, 2011 from $11,000 for the three months ended December 31, 2011, reflecting a decrease in the average balance of such securities to $1.3 million for the three months ended December 31, 2011 from $1.5 million for the three months ended December 31, 2010, as well as a decrease in the average yield on available for sale securities to 1.72% from 2.50% and a decrease in the average yield on held to maturity securities to 3.09% from 3.40%.
Interest Expense
. Interest expense decreased $17,000, or 12.9%, to $113,000 for the three months ended December 31, 2011 from $130,000 for the three months ended December 31, 2010. The decrease reflected a decrease in the average rate paid on certificates of deposit and Federal Home Loan Bank of Cincinnati borrowings in the three months ended December 31, 2011 compared to the three months ended December 31, 2010.
Interest expense on certificates of deposit decreased $10,000, or 13.9%, to $66,000 for the three months ended December 31, 2011 from $76,000 for the three months ended December 31, 2010. The average balance of such certificates increased $0.7 million, or 3.6%, to $18.2 million for the three months ended December 31, 2011 from $17.5 million for the three months ended December 31, 2010. The decrease in interest expense resulted from a decrease in the average cost of such certificates to 1.45% for the three months ended December 31, 2011 from 1.74% for the three months ended December 31, 2010.
Interest expense on borrowings, consisting of advances from the Federal Home Loan Bank of Cincinnati, decreased by $7,000, or 13.1%, to $44,000 for the three months ended December 31, 2011 from $51,000 for the three months ended December 31, 2010. The decrease reflected the lower weighted average rate paid on such borrowings to 2.80% for the three months ended December 31, 2011 from 3.22% for the three months ended December 31, 2010. The average balance of such borrowings remained unchanged at $6.3 million for the three months ended December 31, 2011 and 2010.
The following tables set forth average balance sheets, average yields and costs, and certain other information for the three months ended December 31, 2011 and 2010. All average balances are monthly average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income.
29
Table of Contents
|
|
(Dollars in thousands)
|
|
|
|
Three months ended 12-31-2011
|
|
Three months ended 12-31-2010
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Average
|
|
and
|
|
|
|
Average
|
|
and
|
|
|
|
|
|
Balance
|
|
Dividends
|
|
Yield/Cost
|
|
Balance
|
|
Dividends
|
|
Yield/Cost
|
|
Assets
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
36,424
|
|
$
|
469
|
|
5.15
|
%
|
$
|
37,096
|
|
$
|
489
|
|
5.28
|
%
|
Investment securities available for sale
|
|
697
|
|
3
|
|
1.72
|
%
|
704
|
|
4
|
|
2.50
|
%
|
Investment securities held to maturity
|
|
626
|
|
5
|
|
3.09
|
%
|
789
|
|
7
|
|
3.40
|
%
|
FHLB stock
|
|
398
|
|
4
|
|
4.03
|
%
|
398
|
|
4
|
|
4.03
|
%
|
Other interest-earning assets
|
|
5,257
|
|
2
|
|
0.20
|
%
|
3,018
|
|
4
|
|
0.42
|
%
|
Total interest-earning assets
|
|
43,402
|
|
483
|
|
4.45
|
%
|
42,005
|
|
508
|
|
4.84
|
%
|
Noninterest-earning assets
|
|
2,508
|
|
|
|
|
|
1,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
45,910
|
|
|
|
|
|
$
|
43,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
9,381
|
|
$
|
3
|
|
0.14
|
%
|
$
|
8,067
|
|
$
|
3
|
|
0.14
|
%
|
Certificates of deposit
|
|
18,153
|
|
66
|
|
1.45
|
%
|
17,524
|
|
76
|
|
1.74
|
%
|
Total interest-bearing deposits
|
|
27,534
|
|
69
|
|
1.00
|
%
|
25,591
|
|
79
|
|
1.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
6,333
|
|
44
|
|
2.80
|
%
|
6,333
|
|
51
|
|
3.22
|
%
|
Total interest-bearing liabilities
|
|
33,867
|
|
113
|
|
1.34
|
%
|
31,924
|
|
130
|
|
1.63
|
%
|
Other noninterest-bearing liabilities
|
|
979
|
|
|
|
|
|
1,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock in ESOP subject to repurchase obligation
|
|
28
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
11,036
|
|
|
|
|
|
10,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
45,910
|
|
|
|
|
|
$
|
43,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
$
|
370
|
|
|
|
|
|
$
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
3.11
|
%
|
|
|
|
|
3.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
3.41
|
%
|
|
|
|
|
3.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to average interest-bearing liabilities
|
|
128.15
|
%
|
|
|
|
|
131.54
|
%
|
|
|
|
|
30
Table of Contents
Provision for Loan Losses
. We establish a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrowers ability to repay a loan and the levels of nonperforming loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or economic conditions change. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as circumstances change or as more information becomes available. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses as required in order to maintain the allowance.
A provision for loan losses of $15,000 was recorded for the three months ended December 31, 2011 compared to no provision for loan losses for the three months ended December 31, 2010. The allowance for loan losses was $251,000, or 0.69% of total loans, at December 31, 2011, $221,000, or 0.59% of total loans at June 30, 2011, and $191,000, or 0.51% of total loans at December 31, 2010. Total nonperforming loans were $176,000 at December 31, 2011 compared to $90,000 at December 31, 2010. The $86,000 increase in nonperforming loans was comprised of the addition of a past due $115,000 1-4 family loan now classified as nonaccrual less principal reductions of $29,000 on a 1-4 family loan carried as nonaccrual. No specific loss allocations were deemed probable on impaired loans at December 31, 2011. To the best of our knowledge, we have recorded all probable incurred credit losses for the three month periods ended December 31, 2011 and December 31, 2010.
Noninterest Income
. Our noninterest income increased to $1,300 for the three months ended December 31, 2011 from $800 for the three months ended December 31, 2010. The increase is the result of higher fee income for the three months ended December 31, 2010 offset by the loss on disposal of computer equipment that was not fully depreciated at the time of disposal during the three months ended December 31, 2010.
Noninterest Expense
. Noninterest expense decreased $3,000, or 0.8%, to $312,000 for the three months ended December 31, 2011 from $315,000 for the three months ended December 31, 2010. Data processing expense decreased $6,000, or 24.9%, to $18,000 for the three months ended December 31, 2011 from $24,000 for the three months ended December 31, 2010. Data processing expense was $6,000 higher in the three months ended December 31, 2010 due to migration to a new data processing system which included an integrated general ledger and fixed asset accounting. Office occupancy and equipment expense decreased $3,000, or 30.5%, to $5,000 for the three months ended December 31, 2011 from $8,000 for the three months ended December 31, 2010. These decreases were offset by franchise taxes that increased $4,000, or 21.3%, to $25,000 for the three months ended December 31, 2011 from $21,000 for the three months ended December 31, 2010. Likewise, legal, accounting and exam fee expense increased $2,000, or 3.3%, to $66,000 for the three months ended December 31, 2011 from $64,000 for the three months ended December 31, 2010. There was zero real estate owned expense for the three
31
Table of Contents
months ended December 31, 2011 compared to $700 of real estate owned expense for the three months ended December 31, 2010. Given the increase in fixed assets from the construction of the new home office building, depreciation expense will increase in future periods. The additional expense will increase noninterest expense and reduce net income.
Income Tax Expense
. The provision for income taxes decreased to $14,900 for the three months ended December 31, 2011, compared to $21,200 for the three months ended December 31, 2010, a decrease of $6,300, or 29.7%, as a result of the decrease in net income before income taxes. The effective tax rate was relatively unchanged for the comparative periods. The effective tax rate was 34.2% and 33.4%, respectively for the three months ended December 31, 2011 and 2010.
Comparison of Results of Operations for the Six Months Ended December 31, 2011 and the Six Months Ended December 31, 2010.
General
. Net income decreased $19,000, or 21.6%, to $68,000 for the six months ended December 31, 2011 from $87,000 for the six months ended December 31, 2010. The decrease reflects the after tax effect of an increase in expense for the provision for loan losses during the six months ended December 31, 2011.
Net Interest Income
.
Net interest income represents the difference between the income we earn on interest-earning assets and the interest expense we pay on interest-bearing liabilities. Net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. Net interest income increased $3,000, or 0.5%, to $746,000 for the six months ended December 31, 2011 from $743,000 for the six months ended December 31, 2010. This reflected an increase in our interest rate spread to 3.11% from 3.08% partially offset by a minimal decrease in the ratio of our average interest earning assets to average interest bearing liabilities to 129.15% from 131.15%. Our net interest margin decreased to 3.41% from 3.50% primarily because our interest bearing liabilities repriced faster than our interest earning assets in the current low interest rate environment
Interest Income
. Interest and dividend income decreased $52,000, or 5.0%, to $980,000 for the six months ended December 31, 2011 from $1,032,000 for the six months ended December 31, 2010. Average interest-earning assets moderately increased to $43.7 million for the six months ended December 31, 2011 from $42.4 million for the six months ended December 31, 2010. The decrease in interest and dividend income is attributable to a decrease in the average yield on interest earning assets to 4.48% for the six months ended December 31, 2011 from 4.86% for the six months ended December 31, 2010.
Interest income on loans decreased $42,000, or 4.2%, to $950,000 for the six months ended December 31, 2011 from $992,000 for the six months ended December 31, 2010, reflecting a decrease in the average balance of loans to $36.7 million for the six months ended December 31, 2011 from $37.2 million for the six months ended December 31, 2010, as well as lower average yields on such balances, to 5.18% for the six months ended December 31, 2011 compared to 5.33%
32
Table of Contents
for the six months ended December 31, 2010. The lower yields reflect the continued low interest rate environment.
Interest and dividend income on investment securities decreased $7,000, or 28.1%, to $16,000 for the six months ended December 31, 2011 from $23,000 for the six months ended December 31, 2010, reflecting a decrease in the average balance of such securities to $1.3 million for the six months ended December 31, 2011 from $1.5 million for the six months ended December 31, 2010, as well as a decrease in the average yield on available for sale securities to 1.78% from 2.51% and a decrease in the average yield on held to maturity securities to 3.14% from 3.42%.
Interest Expense
. Interest expense decreased $55,000, or 19.1%, to $234,000 for the six months ended December 31, 2011 from $289,000 for the six months ended December 31, 2010. The decrease reflected a decrease in the average rate paid on certificates of deposit and Federal Home Loan Bank of Cincinnati borrowings in the six months ended December 31, 2011 compared to the six months ended December 31, 2010.
Interest expense on certificates of deposit decreased to $136,000 for the six months ended December 31, 2011 from $158,000 for the six months ended December 31, 2010. The average balance of such certificates increased slightly to $17.9 million for the six months ended December 31, 2011 from $17.6 million for the six months ended December 31, 2010. A decrease in the average cost of such certificates to 1.51% for the six months ended December 31, 2011 from 1.79% for the six months ended December 31, 2010 resulted in the decrease in interest expense.
Interest expense on borrowings, consisting of advances from the Federal Home Loan Bank of Cincinnati, decreased by $33,000, or 26.6%, to $92,000 for the six months ended December 31, 2011 from $125,000 for the six months ended December 31, 2010. The decrease reflected the lower weighted average rate paid on such borrowings to 2.76% for the six months ended December 31, 2011 from 3.8% for the six months ended December 31, 2010, offset by a moderate increase in the average balance of such borrowings to $6.7 million for the six months ended December 31, 2011 from $6.6 million for the six months ended December 31, 2010.
The following tables set forth average balance sheets, average yields and costs, and certain other information for the six months ended December 31, 2011 and 2010. All average balances are monthly average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income.
33
Table of Contents
|
|
(Dollars in thousands)
|
|
|
|
Six months ended 12-31-2011
|
|
Six months ended 12-31-2010
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Average
|
|
and
|
|
|
|
Average
|
|
and
|
|
|
|
|
|
Balance
|
|
Dividends
|
|
Yield/Cost
|
|
Balance
|
|
Dividends
|
|
Yield/Cost
|
|
Assets
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
36,671
|
|
$
|
950
|
|
5.18
|
%
|
$
|
37,248
|
|
$
|
992
|
|
5.33
|
%
|
Investment securities available for sale
|
|
699
|
|
6
|
|
1.78
|
%
|
707
|
|
9
|
|
2.51
|
%
|
Investment securities held to maturity
|
|
646
|
|
10
|
|
3.14
|
%
|
820
|
|
14
|
|
3.42
|
%
|
FHLB stock
|
|
398
|
|
8
|
|
4.01
|
%
|
398
|
|
8
|
|
4.26
|
%
|
Other interest-earning assets
|
|
5,298
|
|
6
|
|
0.22
|
%
|
3,259
|
|
9
|
|
0.54
|
%
|
Total interest-earning assets
|
|
43,712
|
|
980
|
|
4.48
|
%
|
42,432
|
|
1,032
|
|
4.86
|
%
|
Noninterest-earning assets
|
|
2,174
|
|
|
|
|
|
1,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
45,886
|
|
|
|
|
|
$
|
44,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
9,243
|
|
$
|
6
|
|
0.14
|
%
|
$
|
8,136
|
|
$
|
6
|
|
0.14
|
%
|
Certificates of deposit
|
|
17,935
|
|
136
|
|
1.51
|
%
|
17,625
|
|
158
|
|
1.79
|
%
|
Total interest-bearing deposits
|
|
27,178
|
|
142
|
|
1.04
|
%
|
25,761
|
|
164
|
|
1.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
6,667
|
|
92
|
|
2.76
|
%
|
6,583
|
|
125
|
|
3.80
|
%
|
Total interest-bearing liabilities
|
|
33,845
|
|
234
|
|
1.37
|
%
|
32,344
|
|
289
|
|
1.78
|
%
|
Other noninterest-bearing liabilities
|
|
995
|
|
|
|
|
|
1,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock in ESOP subject to repurchase obligation
|
|
25
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
11,021
|
|
|
|
|
|
10,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
45,886
|
|
|
|
|
|
$
|
44,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
$
|
746
|
|
|
|
|
|
$
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
3.11
|
%
|
|
|
|
|
3.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
3.41
|
%
|
|
|
|
|
3.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to average interest-bearing liabilities
|
|
129.15
|
%
|
|
|
|
|
131.15
|
%
|
|
|
|
|
34
Table of Contents
Provision for Loan Losses
. We establish a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrowers ability to repay a loan and the levels of nonperforming loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or economic conditions change. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as circumstances change or as more information becomes available. We assess the allowance for loan losses on a quarterly basis and make provision for loan losses as required in order to maintain the allowance.
A provision for loan losses of $30,000 was recorded for the six months ended December 31, 2011 compared to no provision for loan losses recorded for the six months ended December 31, 2010. The additional reserves are due to declining real estate values both nationally and regionally. The allowance for loan losses was $251,000, or 0.69% of total loans, at December 31, 2011, $221,000, or 0.59% of total loans at June 30, 2011, and $191,000, or 0.51% of total loans at December 31, 2010. Total nonperforming loans were $176,000 at December 31, 2011 compared to $90,000 at December 31, 2010. The $86,000 increase in nonperforming loans was comprised of the addition of a past due $115,000 1-4 family loan now classified as nonaccrual less principal reductions of $29,000 on a 1-4 family loan carried as nonaccrual. No specific loss allocations were deemed probable on impaired loans at December 31, 2011. To the best of our knowledge, we have recorded all probable incurred credit losses for the six month periods ended December 31, 2011 and December 31, 2010.
Noninterest Income
. Our noninterest income increased to $2,400 for the six months ended December 31, 2011 from $900 for the six months ended December 31, 2010. The increase was primarily due to the net loss on operation and sale of REO coupled with the loss on disposal of computer equipment during the six months ended December 31, 2010 compared no activity in either of those areas for the six months ended December 31, 2011.
Noninterest Expense
. Noninterest expense increased $2,000, or 0.4%, to $616,000 for the six months ended December 31, 2011 from $614,000 for the six months ended December 31, 2010. The increase included salaries and employee benefits expense increasing $6,000, or 2.2%, to $299,000 for the six months ended December 31, 2011 from $293,000 for the six months ended December 31, 2010 primarily due to a lower loan volume resulting in a reduced deferral of loan origination costs which are required to be deferred and amortized over the life of the loan. Franchise taxes increased $9,000, or 21.3%, to $50,000 for the six months ended December 31, 2011 from $41,000 for the six months ended December 31, 2010. Likewise, legal, accounting and exam fee expense increased $3,000, or 1.8%, to $143,000 for the six months ended December 31, 2011 from $140,000 for the six months ended December 31, 2010. These increases were offset by data processing expense that decreased $5,000, or 12.0%, to $36,000 for the six months ended December 31, 2011 from $41,000 for the six months ended December 31, 2010. Office occupancy and equipment expense decreased $5,000, or 30.6%, to $11,000 for the six months ended
35
Table of Contents
December 31, 2011 from $16,000 for the six months ended December 31, 2010. There was zero real estate owned expense for the six months ended December 31, 2011 compared to $5,000 of real estate owned expense for the six months ended December 31, 2010. Given the increase in fixed assets from the construction of the new home office building, depreciation expense will increase in future periods. The additional expense will increase noninterest expense and reduce net income.
Income Tax Expense
. The provision for income taxes decreased to $35,200 for the six months ended December 31, 2011, compared to $43,500 for the six months ended December 31, 2010, a decrease of $8,300, or 19.1%, as a result of the decrease in net income before income taxes. The effective tax rate was 34.1% and 33.4%, respectively, for the six months ended December 31, 2011 and 2010.
Liquidity and Capital Resources
Our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities. We also utilize Federal Home Loan Bank advances. While maturities and scheduled amortization of loans and securities are predicable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. We generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships.
Our cash flows are comprised of three primary classifications: (i) cash flows provided by operating activities, (ii) investing activities, and (iii) financing activities. Net cash flows from operating activities were $17,378 for the six months ended December 31, 2011 and $303,070 for the six months ended December 31, 2010. The decrease is a result of a decrease in other accrued expenses and an increase in other assets.
Net cash from investing activities consisted primarily of disbursements for loan originations, offset by principal collections on loans, and proceeds from securities and time deposit maturities. Net cash flows from investing activities were $492,154 for the six months ended December 31, 2011 and net cash flows used in investing activities were $(399,343) for the six months ended December 31, 2010. The increase resulted from fewer new loan disbursements in the six months ended December 31, 2011 partially offset by fixed asset purchases related to the construction of a new home office.
Net cash from financing activities consisted primarily of activity in deposits and borrowings. Net cash flows from financing activities were $1,323,200 for the six months ended December 31, 2011 and net cash flows from financing activities were $(1,945,929) for the six months ended December 31, 2010. The changes in net cash flows provided by and used for financing activities over the periods were due to both increased deposits and to the proceeds from and repayments of FHLB advances.
36
Table of Contents
Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. At December 31, 2011 and June 30, 2011, cash and short-term investments totaled $5.9 million and $4.1 million, respectively. We may also utilize the sale of securities available-for-sale, federal funds purchased, Federal Home Loan Bank of Cincinnati advances and other borrowings as sources of funds.
At December 31, 2011 and June 30, 2011, we had outstanding commitments to originate loans of $260,000 and $161,000, respectively, and no unfunded commitments under lines of credit. We had unfunded commitments for residential construction loans totaling $550,000 and $517,000, respectively, at December 31, 2011 and June 30, 2011. We anticipate that we will have sufficient funds available to meet our current loan commitments. Loan commitments have, in recent periods, been funded through liquidity and normal deposit flows. Certificates of deposit scheduled to mature in one year or less from December 31, 2011 totaled $10.5 million compared to $11.3 million at June 30, 2011. Based on past experience, management believes that a significant portion of such deposits will remain with us. Based on the foregoing, in addition to our level of core deposits and capital, we consider our liquidity and capital resources sufficient to meet our outstanding short-term and long-term needs.
Liquidity management is both a daily and long-term responsibility of management. We adjust our investments in liquid assets based upon managements assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and investment securities, and (iv) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits, federal funds sold, and short and intermediate-term U.S. Government and agency obligations and residential mortgage-backed securities of short duration. If we require funds beyond our ability to generate them internally, we have additional borrowing capacity with the Federal Home Loan Bank of Cincinnati. At December 31, 2011, we had $6.0 million outstanding in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $10.6 million.
The Association is subject to various regulatory capital requirements. At December 31, 2011 and June 30, 2011, we were in compliance with all applicable capital requirements.
|
|
|
|
|
|
To Be
|
|
|
|
|
|
|
|
Well Capitalized
|
|
|
|
|
|
|
|
Under Prompt
|
|
|
|
|
|
|
|
Corrective
|
|
|
|
Actual
|
|
Action Regulations
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
10,077
|
|
38.1
|
%
|
$
|
2,646
|
|
10.0
|
%
|
Tier I (core) capital (to risk-weighted assets)
|
|
9,827
|
|
37.1
|
|
1,588
|
|
6.0
|
|
Tier I (core) capital (to adjusted total assets)
|
|
9,827
|
|
21.5
|
|
2,289
|
|
5.0
|
|
Tangible capital (to adjusted total assets)
|
|
9,827
|
|
21.5
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Table of Contents
|
|
|
|
|
|
To Be
|
|
|
|
|
|
|
|
Well Capitalized
|
|
|
|
|
|
|
|
Under Prompt
|
|
|
|
|
|
|
|
Corrective
|
|
|
|
Actual
|
|
Action Regulations
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
9,905
|
|
38.1
|
%
|
$
|
2,602
|
|
10.0
|
%
|
Tier I (core) capital (to risk-weighted assets)
|
|
9,685
|
|
37.2
|
|
1,561
|
|
6.0
|
|
Tier I (core) capital (to adjusted total assets)
|
|
9,685
|
|
21.8
|
|
2,225
|
|
5.0
|
|
Tangible capital (to adjusted total assets)
|
|
9,685
|
|
21.8
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosures of quantitative and qualitative market risk are not required by smaller reporting companies, such as the Company.
ITEM 4 CONTROLS AND PROCEDURES
As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Companys management, including the Chief Executive Office and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-15e. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.
There have not been any changes in the Companys internal control over financial reporting that occurred during the Companys last quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
38
Table of Contents
VERSAILLES FINANCIAL CORPORATION
Other Information
PART II OTHER INFORMATION
Item 1 Legal Proceedings
The Company is subject to various legal
actions that are considered ordinary routine litigation incidental to the business of the Company, and no claim for money damages exceeds ten percent of the Companys consolidated assets. In the opinion of management, based on currently available information, the resolution of these legal actions is not expected to have a material adverse effect on the Companys results of operations.
Item 1A Risk Factors
- Disclosure of risk factors is not required by smaller reporting companies, such as the Company.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3 Defaults Upon Senior Securities
None.
Item 4 [Removed and Reserved].
Item 5 Other Information
None.
Item 6 Exhibits
|
|
|
|
Reference to
|
Exhibit
|
|
|
|
Previous Filing,
|
Number
|
|
Document
|
|
If Applicable
|
|
|
|
|
|
3.1
|
|
Articles of Incorporation of Versailles Financial Corporation
|
|
*
|
|
|
|
|
|
3.2
|
|
Bylaws of Versailles Financial Corporation
|
|
*
|
|
|
|
|
|
4
|
|
Form of Common Stock Certificate of Versailles Financial Corporation
|
|
*
|
|
|
|
|
|
10.1
|
|
Employee Stock Ownership Plan
|
|
*
|
|
|
|
|
|
10.2
|
|
Versailles Savings and Loan Company Deferred Compensation Plan
|
|
*
|
|
|
|
|
|
10.3
|
|
First Amendment to Versailles Savings and Loan Company Deferred Compensation Plan
|
|
*
|
|
|
|
|
|
10.4
|
|
Restated 2005 Sub-Plan to Versailles Savings and Loan Company Deferred Compensation Plan
|
|
*
|
|
|
|
|
|
10.5
|
|
First Amendment to Restated 2005 Sub-Plan to Versailles Savings and Loan Company Deferred Compensation Plan
|
|
*
|
39
Table of Contents
10.6
|
|
Trust Agreement for Versailles Savings and Loan Company Deferred Compensation Plan and Restated 2005 Sub-Plan to Versailles Savings and Loan Deferred Compensation Plan
|
|
*
|
|
|
|
|
|
10.7
|
|
Employment Agreement between Versailles Savings and Loan Company and Douglas P. Ahlers, dated January 8, 2010
|
|
**
|
|
|
|
|
|
10.8
|
|
Employment Agreement between Versailles Savings and Loan Company and Cheryl J. Leach, dated January 8, 2010
|
|
**
|
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer, Rule 13a-14(a)/15d-14(a)
|
|
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer, Rule 13a-14(a)/15d-14(a)
|
|
|
|
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 of the Sarbanes Oxley Act of 2002
|
|
|
|
|
|
|
|
101
|
|
The following materials from the Companys Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Other Comprehensive Income (Loss), (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements. (***)
|
|
|
*
|
|
Incorporated by reference to the Companys Registration Statement on Form S-1 filed on September 17, 2009
|
**
|
|
Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC on January 11, 2010
|
***
|
|
Furnished, not filed.
|
40
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
VERSAILLES FINANCIAL CORPORATION
|
|
(Registrant)
|
|
|
|
Date:
|
February 14, 2012
|
|
/s/ Douglas P. Ahlers
|
|
Douglas P. Ahlers
|
|
|
President & CEO
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
Date:
|
February 14, 2012
|
|
/s/ Cheryl J. Leach
|
|
Cheryl J. Leach
|
|
|
Vice President & Treasurer
|
|
|
(Principal Accounting Officer)
|
|
41
Versailles Financial (CE) (USOTC:VERF)
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Versailles Financial (CE) (USOTC:VERF)
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